You Credit Score: How's Your FICO?

Because our society is so automated, it's probably not that surprising that your creditworthiness boils down to one number. This score is compiled by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car loans, credit cards, and the like.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. The original FICO model was developed by Fair Isaac and Company. Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While the formulas vary, the differences aren't huge; all of the agencies use the following factors to build a score:

  • Credit History - How many years have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher scores are better. Most home buyers probably find their credit scores above 620.

Your score affects how much you pay in interest every month

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Can I raise my FICO score?

What can you do to raise your FICO score? Unfortunately, not much. So called "credit repair" companies advertise quick fixes, but the FICO score is calculated from your lifelong credit history, so you can't turn it around right away. You should appeal for the credit agency to remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.

Know your FICO

To improve your score, you've got to obtain the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from all three credit reporting agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your credit score? Call us: 608-592-5600.

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